Investigation on the Factors Affecting the Audit Quality in Iran According to the Indicators of the Public Company Accounting Oversight Board (PICAOB)

Document Type : Research Paper

Authors

1 Associate Prof. of Accounting, Alborz Campus, University of Tehran, Karaj, Iran

2 Ph.D. Candidate in Accounting, Alborz Campus, University of Tehran, Karaj, Iran

Abstract

The aim of this study is to provide a model for investigating the audit quality with respect to systemic factors. In spite of the previous look at the audit quality that was product oriented, this study has been considered process-oriented and system-specific. The potential indicators presented in this study include the inputs of the audit, the audit process and the audit results. The statistical population of this study is the audit experts, managers and partners of the audit institution members of the official accountants’ community of Iran and the audit organization. The statistical deduction of the research is done by fuzzy logic. According to the results, the greatest impact on the audit quality is due to the average years of experience, industry expertise, partner, manager, engagement quality reviewer hours and timing relative to total audit effort, indicators related to independence and observance of those indicators, frequency and market impact of financial statement restatements for errors, the workload of partners and employees, chargeable hours per professional, and compensation trends of prematurely-rotated partners indicators.

Keywords

References

Abdolmohammadi, M. & Wright, A. (1987). An Examination of the Effects of Experience and Task Complexity on Audit Judgments. The Accounting Review, 62(1), 1-13.
Alavi, S.M., Ghorbani, B. & Rostami, W. (2015). Investigating the Factors Affecting the Audit Quality in the Audit Institution Members of the Iranian Society of Official Accountants. Journal of Audit Science, 15(60), 47-70. (in Persian)
Alim, M.N., Trisni, H. & Lilik, P. (2007). The effect of competence and independence to the audit quality. Procedeeng of national accounting symposium x, Indonesian Accounting Association, Makassar, Indonesia, pp. 31-48.
Bing, J., Huang, C.X., Li, A. & Zhu, X. (2014). Audit Quality Research Report. Australian National Centre for Audit and Assurance Research. Hanna Neumann Building #21. Canberra ACT 0200 Australia.
Catanach, W. (1999). The International Debate over Mandatory Auditor Rotation, A Conceptual Research Framework. Journal of International Accounting, Auditing and Taxation, 8(1), 43-66.
Copley, P. & Doucet, M. (1993). Auditor Tenure, Fixed Fee Contracts, and the Supply of Substandard Single Audits. Public Budgeting & Finance, 13(3), 23-36.
Dang, L. (2004). Assessing actual audit quality. PhD thesis, Drexel University, Philadelphia, USA.
Davidson, R.A. & Neu, D. (1993). A Note on Association between Audit Firm Size and Audit Quality. Contemporary Accounting Research, 9(2), 479-488.
De Angelo, L.E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183-199.
DeFond, M.L., Raghunandan, K. & Subramanyam, K.R. (2002). Do non-audit service fees impair auditor independence? Evidence from going-concern audit opinions. Journal of Accounting Research, 40(4), 1247-74.
Ebrahimi Kordler, A. & Javani Ghalandari, M. (2016). The effect of auditor expertise on earnings quality and stock price synchronicity. The Iranian Accounting and Auditing Review, 23(2), 137-154. (in Persian)
Francis, J.R. (2011). A Framework for Understanding and Researching Audit Quality. AUDITING: A Journal of Practice & Theory, 30(2), 125-152.
Fung, S.Y.K., Raman, K.K. & Zhu, X. (2017). Does the PCAOB international inspection program improve audit quality for non-US-listed foreign clients? Journal of Accounting and Economics, 64(1), 15-36.
Geiger, M.A. & Raghunandan, K. (2002). Auditor Tenure and Audit Reporting Failures. AUDITING: A Journal of Practice & Theory, 21(1), 67-78.
Hassa Yeganeh, Y., Valizadeh Larijani, A. & Mohamadi, A. (2013). Investigation of the Effect of Audit Specialists on Financial Reporting and Market Pricing. Quarterly Journal of Securities Exchange, 19, 43-64. (in Persian)
Hassas Yeganeh, Y. & Azinfar, K. (2010). Relationship between Audit Quality and Auditor Size. The Iranian Accounting and Auditing Review, 17(61), 83-96. (in Persian)
Hassas Yeganeh, Y., & Gholamzadeh Ladari, M. (2012). Comprehensive assessment of audit quality in Iran: Research Opportunities. 10th Iranian Academic Accounting conference. In date 2012-05-23 untill 2012-05-24, Alzahra University, Tehran. (in Persian)
Hassas Yeganeh, Y. & Jafari, A. (2005). An Evaluation of the Independence and Competence of Iranian Association of Certified Public Accountants on the Attestation Services. Empirical Studies in Financial Accounting, 10(3), 103-125. (in Persian)
Heidari, M., Qaderi, B. & Rasouli, P. (2016). The Effect of Audit Quality on Agency Costs and Information Asymmetry: Structural Equation Modeling Approach. The Iranian Accounting and Auditing Review, 23(3), 353-372.
(in Persian)
Houqe, N., Ahmed, K. & van Zijl, T. (2015). Effects of audit quality on earnings quality and cost of equity capital: evidence from India. Victoria university of Wellington. Available online at: http://researcharchive.vuw.ac.nz/handle /10063/4173.
IAASB. (2011). Audit Quality an IAASB perspective, Available at: www.iaasb.org.
Imani Barandagh, M., Mehrani, K. & Hojat Shamami, R. (2016). Determining Factors of Audit Quality in Perspective of Iranian Certified Public Accountants. Journal of Accounting Knowledge, 7(25), 167-189.
King, R. R. & Schwartz, R. (1999). Legal penalties and audit quality: An experimental investigation. Contemporary Accounting Research, 16(4), 685–710.
Knechel, W.R., Krishnan, G.V., Pevzner, M., Shefchik, L.B. & Velury, U. (2012). Audit quality: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 32(1), 385–421.
Lee J.E. & Bae, G.S. (2012). How Do Audit Firm Quality Indicators Relate to Engagement-Level Audit Quality? Available at: https://ssrn.com/abstract =2149953.
Lennox, C. & Pittman, J. (2010). Big five audits and accounting fraud. Contemporary Accounting Research, 27(1), 209-247.
Li, D. (2010). Does auditor tenure affect accounting conservatism? Further evidence. Journal of Accounting and Public Policy, 29(3), 226-241.
Lowensohn, S., Johnson, E. L., Randal, J. R. & Davies, P. S. (2007). Auditor specialization, perceived audit quality, and audit fees in the local government audit market. Journal of Accounting and Publicy, 26(6), 705-732.
Martin, R.D. (2013). Audit Quality Indicators: Audit Practice Meets Audit Research. Current Issues in Auditing, 7(2), 17-23.
Mojtahedzadeh, V. & Aghaei, P. (2005). Factors Affecting on Independent Audit Quality: From the Viewpoint of Auditors and Users. The Iranian Accounting and Auditing Review, 11(4), 53-76. (in Persian)
Momeni, M. & Sharifi Salim, A. (2011). Models and Software of Multi Criteria Decision Making. 1st ed. Elm o Danesh Press, Tehran. (in Persian)
Namazi, M. & Karimi, M. (2011). Investigating fuzzy logic applications in accounting. Journal of Financial Management and Accounting Perspective, 1, 9-36. (in Persian)
Nikbakht, M.R., Shabani, M., & Kenar Kar, A. (2014). The relationship between audit fee and auditor's experience with audit quality. UCT Journal of Management and Accounting Studies, 2(1), 190-208. (in Persian)
Okoli, C. & Pawlowski, S.D. (2004). The Delphi method as a research tool: An example, design considerations and applications. Information & Management, 42(1), 15-30.
PCAOB. (2013). Discussion – Audit Quality Indicators. Public Company Accounting Oversight Board Strategic Plan. Available in: www.pcaobus.org.
Persellin, J., Schmidt, J.J. & Wilkins, M. (2014). Auditor Perceptions of Audit Workloads, Audit Quality, and the Auditing Profession. doi: 10.2139/ssrn.2534492
Powell, C. (2003). The Delphi technique: Myths and realities. Methodological Issues in Nursing Research, 41(4), 376-382.
Rahimian, N., Rezapoor, N. & Khezri, H. (2011). Role of institution owners on quality of accruals. Journal of Audit Sience, 45, 68-81. (in Persian)
Royaei, R.A., Talebnia, Gh., Hasas Yeganeh, Y. & Jalili, S. (2013). Relationship between Personal Moral Philosophy and Demographic Characteristics with Audit Quality Reduction Behaviors. The Iranian Accounting and Auditing Review, 6 (16), 15-26. (in Persian)
Sarikhani, N. & Barzegar, E. (2016). Analysis of the relationship between audit quality and restatement of financial statements resulted from earning management and cash management in firms listed in Tehran Stock Exchange. Science & Research Quarterly of Financial Accounting, 8(29), 103-131.
(in Persian)
Schauer, P.C. (2000). Differences in Audit Quality among Audit Firms: An Examination Using Bid-ask Spreads, Working paper.
Setayesh, M., Kazem Nejad, M., Rezaei, Gh.R. & Dehghani, A.A. (2016). The Usefulness of Feature Selection in Auditors Opinion Type Prediction. The Iranian Accounting and Auditing Review, 23(3), 373-392. (in Persian)
Story, V., Hurdley, L., Smith, G. & Saker, J. (2001). Methodological and practical implications of the Delphi technique in marketing decision-making: A reassessment. The Marketing Review, 1, 487-504.
Suyono, E. (2012). Determinant Factors Affecting the Audit Quality: An Indonesian Perspective. Global Review of Accounting and Finance, 3(2), 42-57.
 
Accounting and Auditing Review
Volume 24, Issue 3
2017
Pages 441-462

Files

Share

How to cite

Statistics